The ringfencing outlined by Sir John Vickers's independent commission report on banking is intended to insulate high street banking businesses from their riskier investment banking arms. Banks will have to put their high street banking in a separate legal subsidiary that will have to hold capital of at least 10% – or up to 20% if debt instruments are included.

What sits inside the ringfence is open to some flexibility. Vickers is clear that deposits and overdrafts of retail customers and small businesses should be inside while wholesale and investment banking operations, such as derivatives and trading activities, should be left outside. But it will be up to the banks to decide whether to put their large, non-financial, corporate clients inside the ringfence. Some lending to these customers could be inside the ringfence and some outside.

Banks could find their ringfenced businesses competing with their non-ringfenced arms.

The ringfenced bank will have its own board of directors, comprising a majority of independent directors, one of whom will be its chair. This subsidiary will be required to publish profit and loss information as if it were an independent company, even though ultimately it has the support of its parent, which could include an investment bank and wholesale banking operation.

The commission reckons that these requirements will "create a strong fence" which, unlike total separation, will allow the parent company to move capital between the bank's different subsidiaries and big customers to use the same bank for retail and investment banking services.

A ringfence split also allows banks to share internal systems and infrastructure, again cheaper than full separation.